Open banking is the use of an API (Application Programming Interface) to connect bank customers' accounts to third parties who use the information to provide products and services to suit their clients' spending and income history.
Banks share the data of their customers who consented to it and share it through a centralized platform operated by NIBSS, which allows third parties to have access to customers' account history via API. Nigeria Inter-Bank Settlement System (NIBSS) is the company that houses banking data in Nigeria, including customers' biometric data called BVN (Bank Verification Number).
The problem with customer consent is that some of them may simply consent to open banking without knowing, while others may be forced to do so because they want to enjoy a particular service from their bank or fintech.
Third parties are companies interested in customers' banking history to make decisions on how to provide better services and products to their customers. Third parties might include credit rating companies, other commercial banks, fintechs, loan providers (loan sharks), and other companies that want to provide a better experience for their customers.
How Open banking will be done in Nigeria
As mentioned, NIBSS will provide the platform for open banking (OB) in Nigeria. Customers' data can be accessed via their BVN, which is connected to their bank accounts. Customers can then access it through APIs. However, the Central Bank of Nigeria will play a key role in open banking through regulations. In 2023, the CBN provided the regulatory framework for it, and in 2024, it established the operational guidelines for open banking.
Recently, the apex bank stated that OB will become operational on August 1st, 2025. In addition, it has warned banks and other users of the risk of cybersecurity threats. If the August 1st date works out, Nigeria will be the first African country to use Open Banking.
Benefits of Open Banking
Money deposit banks, fintechs, SaaS companies, subscription-based entities, credit rating, and more will benefit from OB.
Customized Experience
Companies that have access to the APIs can create a customized experience for their customers. They can provide services and products that are tailored to their customers' ability to pay. Entities rendering services can tailor the services to the amount that fits their clients' budgets.
Efficient use of Staff
Open banking can allow the efficient use of employees. Tasks that are done via banks, such as reconciliation, will become easier or probably not required. Therefore the staff can be used for other tasks in the entity.
More innovation
Access to customers' data will increase innovation. Software developers and companies will discover ways to satisfy customers' needs and problems and create products to meet those needs.
Data-driven decisions
Companies using Open banking make better decisions. This is because their decisions are based on real-time data rather than guesswork and past experience.
Credit worthiness
Loan providers will assess customers' creditworthiness easily. They will know if the customers can repay a loan or provide a loan amount that suits their budget. Moreover, credit rating companies can use this data to rate borrowers without relying on banks and fintechs to provide them with the data to do so.
In final words, open banking facilitates commerce and a better customer experience. It will increase companies' cash inflow as they can understand data and provide products that suit their clients’ budget and receive payments immediately.
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